Otto Group's progress from catalogs to clicks

By Katie EvansManaging Editor, International Research

Moving from mail order to the web quickly has helped Otto Group thrive as its catalog competitors dwindled. The company, which now owns more than 120 businesses, including 60 online retailers and a fulfillment company, says the Internet saved its business.

Thilo Bendler

“Technology is like surfing: You are always on the crest of a wave and it never stops,” Thilo Bendler, vice president of Otto Group, said in a presentation today at eTail Deutschland in Berlin.

Learning to ride the waves, Bendler added, saved Otto Group, a Hamburg, Germany-based company with roots as a cataloger. Today Otto encompasses much more than mail order, managing a portfolio of 120 companies and brands and 60 retailers. That includes its flagship German site, Otto.de, and sites and stores for U.S.-based Crate and Barrel Holdings Inc. and Eddie Bauer Holdings Inc.

It also operates Hermes, a major fulfillment provider throughout Europe which counts big-name retailers including Ikea, QVC Inc. and H & M Hennes & Mauritz AB as its clients. Bendler says Hermes has ambitions to overtake Deutsche Post DHL in Europe.

“The Internet has saved our business,” Bendler says. “The classical catalog with delivery was coming to an end. Who wants a catalog with 1,500 pages to look at?”

Bendler, a 27-year veteran of the company, says he now spends 90% of this time focused on e-commerce, a channel which brought in 6 billion euros (US$8.35 billion) in its fiscal year ended Feb. 28, up 7.6% from a year earlier.

Otto's web sales in Germany grew 7.8% to 4 billion euros (US$5.57 billion). By comparison, online sales for Amazon.com Inc. last year grew 20.7% in Germany to about $10.54 billion from $8.73 billion in 2012. At Zalando, a Germany-based shoe and apparel e-retailer and another Otto competitor, sales in its key markets of Germany, Austria and Switzerland totaled 1.05 billion euros (US$1.46 billion) in 2013 compared with 773 million euros (US$1.08 billion) a year earlier, an increase of 35.8%.

Despite stiff competition on its home turf, Bendler says Otto is proof that it’s possible to change a retail business model, he says. “We had to think about how we could change from paper to e-commerce. And we understood that if we didn’t we would go bankrupt,” he said.

Part of Otto Group’s strategy was to buy up struggling European competitors, catalogers which Bendler says didn’t move to e-commerce quickly enough. It bought Neckermann in 2012 and still operates it as an e-commerce site under that name, and Quelle, which also sells online under the Quelle name.

“It’s not about size,” Bendler said. “These two show us that big companies can fail as well if they aren’t careful by staying relevant. Even as a big company you can hit the wall rather quickly.”

Part of staying relevant meant understanding that consumers don’t page though massive encyclopedia-like catalogs every six months. Now, many of Otto’s brands send out smaller circulars every six weeks to whet consumers’ appetites and encourage them to go online to see the full selection of products a retailer sells.

“In 2020 will we still have catalogs, but they will only be more of a source of information,” Bendler said. “The catalog as something to order from where we show everything we have on paper will be extinct by 2020. Catalogs can’t stay valid for 6 months like they used to.”

Bender said the web has an advantage over paper in that retailers can showcase nearly limitless products online and swap and change assortment and pricing much more easily and quickly than they could operating as a mail order business.

“What we lose in the catalog business can be compensated for online,” he said. “I think that is absolutely clear.”

With e-commerce, product and assortment and pricing moves fast, Bendler added, which also forced Otto to rethink its former strict profit margin policy. Otto used to insist on at least a 30% profit margin on every product, Bendler said. Now, it’s more flexible, accepting lower margins on fast-moving products. It also changes prices often to compete. And, he says today’s customers don’t get upset about price fluctuation.

“We thought when we made prices more flexible, customers would start complaining but nothing happened, nothing at all,” he said. “Customers don’t expect prices to be the same for weeks on end. They understand it is a supply and demand rule.”

As it did to survive several years ago, Otto is focused on staying on top of technology. The Otto board last year announced its focus on mobile commerce. Many of Otto’s brands are now working on responsive design sites, which use one set of code that adapts to fit the screen size of any device, including all sizes and shapes of smartphones, tablets and computers. Otto said earlier this year that 40% of traffic at some of its online stores stem from mobile devices.

Otto also announced earlier this year it plans to spend 300 million euros (US$417.75 million) in its online business, with a goal of reaching 8 billion euros (US$11.14 billion) in web sales by 2015.

Also on the horizon is a new fashion e-commerce site for women set to launch in early May, Bendler said in an interview after his presentation. The site, to be named Collins, will be spearheaded by the grandson of Otto’s founder, Werner Otto.

The new investments and projects are part of a never-ending effort to stay on top of trends. “Changes now happen faster,” Bendler says reflecting on his nearly 30-year tenure with Otto. “There used to be a big change and then then a quiet period for a bit to settle in. Now we get no breaks.”